And 30 percent of that $10.1 million will go to CDE, attorney, and accountant fees. So in the end only about $7 million of the $15.6 million winds up going to the venture. The bank, for laying out $10.1 million, receives $15.6 million in payments from the state, plus interest payments, and — depending on the deal — payback, after seven years, of its principal or a portion of it.
And the bank may be in close to a no-lose situation. If the business goes bankrupt, the intermediaries — those CDEs — have the ability to shift the loan and the “credits” that go along with them to another project.
$100 MILLION OUT THE DOOR
THAT'S REASSURING Democrat Adam Goode, House chair of the Taxation Committee, calls the process "crazy."
Roney’s agency, FAME, has given six CDEs the authority to distribute credits worth nearly $100 million in cash from the state treasury. The theory is that the banks will make wise investments of their money and taxpayers’ money. In Maine’s first New-Markets-financed transaction, however — involving the East Millinocket paper mill — that doesn’t appear to be the case.
In this transaction, Cate Street Capital, a wealthy New Hampshire financial firm, received $10.6 million in net cash via a New Markets deal in order to restart, in 2012, the recently purchased, idle paper mill. But early this year, amid many troubles, it shut down the mill, laying off more than 200 workers. Now Cate Street says it wants energy-price concessions from the state before it will reopen the mill.
Cate Street’s troubles are not limited to East Millinocket. Last year a consortium of three CDEs received the right to arrange $15.6 million in New Markets loans for a wood-pellet mill, dubbed Thermogen, that Cate Street wants to construct in nearby Millinocket.
The pellet mill, which would employ 36 people, would be located on the grounds of a defunct paper mill, which Cate Street also owns. For this venture, Cate Street/Thermogen would have only $7 million in New Markets cash because a bank (via the “tax credits” discount), the intermediary CDEs, lawyers, and accountants would get the bulk of the $15.6 million. (This deal was used for the example above, citing Cate Street’s numbers.)
In a related but separate handout, the FAME board, under pressure from Republican Governor Paul LePage, voted last fall to have taxpayers guarantee a $25-million bank loan to the Thermogen project through a FAME bond issue.
At the February 20 FAME board meeting, however, the agency’s staff announced that Cate Street had completely reconfigured the Thermogen project. It would be twice as expensive, a new bank would buy the bond issue, and full operation would be pushed off until 2016. The unproven technology that Thermogen had intended to use to produce the wood pellets (for an unproven market) would be replaced by another process.
Given these surprising developments, FAME’s board determined it will have to revisit its approval of the bond issue, probably in April, after Cate Street and FAME’s consultants provided more information on the rejiggered Thermogen. “This project keeps morphing,” muttered FAME board member Patrick Murphy, a Portland businessman critical of the project.
Nevertheless, even as the iffiness of the project grows by the day, Cate Street is still poised to take advantage of the Thermogen tax credits.